Monetary and Fiscal Policy

How do we promote Economic Growth? Fiscal Policy: Actions done by the government to increase GDP and stabilize inflation Monetary Policy: Actions done by the Federal Reserve to increase GDP and stabilize inflation Ben Bernake is the Chairman

So what does this all mean? Bottom Left Corner. Top Box. Expansionary Policy: What to do when the GDP Slows Down or Decreases. Bottom Left Corner. Bottom Box. Contractionary Policy: What to do when inflation grows too quickly

How does the Government do it? Left Box under Fiscal Policy Discretionary Policy: Taxing and spending that requires a vote by Congress. Follow the arrow Expansionary Policy: Increase government spending or lower taxes. Contractionary Policy: Decrease government spending or raise taxes.

How does the Government do it? Fiscal Policy Right Box Automatic Stabilizers: Programs established by congress that benefit people if they qualify. Welfare, Public Assistant, Medicaid. Follow the Arrow Expansionary Policy: Increase Automatic Stabilizers. Contractionary Policy: Decrease Automatic Stabalizers

How does the Fed do it? (Left Box) Reserve Requirement: Money that banks are required to keep on hand when they loan out your deposits. Expansionary Policy: Lower the Reserve Requirement. Contractionary Policy: Raise the Reserve Requirement.

How does the Fed do it? (Middle Box) Discount Rate: The interest rate the Fed charges its member banks. All other interest rates in the economy are set off this. Expansionary Policy: Lower the Discount Rate Contractionary Policy: Raise the Discount Rate

How does the Fed do it? (Right Box) Open Market Operations: The buying and selling of Treasury Bonds. Expansionary Policy: Buy Bonds Contractionary Policy: Sell Bonds